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Page added on August 29, 2007

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The last straw? Alongside debt, rising food prices threaten industrial growth

Just when the world economy seemed to have found immunity to rising world fuel prices, the rising world grain price may be the shock that finally ends its long upturn, as costlier food baskets eat into household budgets.


A surge in world oil prices – to over $70 per barrel this month, almost double the level of two years ago


But could a similar peak in world grain prices, caused by low harvests in the main wheat-growing regions, be about to inflict the stagflationary blow that oil no longer delivers? Some agricultural watchers believe so, pointing out that the world is in many ways less well equipped to deal with prolonged strain on basic food supplies than with a fossil fuel shortage.


Poor harvests this season in Canada, Australia and Eastern Europe are actually a bonus for UK grain farmers, who can sell a relatively good crop into a strong EU market. But the consequent rise in prices of bread, and of meat from grain-fed animals, could be bad news for almost everyone else. While most countries build large strategic oil reserves after the last major shortages, many have let strategic grain stores run down, and lower harvests have already caused a near-doubling of UK animal feed prices according to a recent Deloitte survey.


In the nightmare scenario, higher food prices trigger a more general inflation as employees, whose wages have been failing to keep up with living costs in recent months, make use of a tight labour market to rediscover the strike weapon and force higher pay. More spending on food means less to spare for other items, worsening the drop in demand for goods and services already in the pipeline after recent interest rate rises. There is no relief from export demand because the food price rise has also choked off demand abroad



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